Import barriers: Why US forgets Tariff of 1789 before blaming India

US Secretary of State John Kerry arrived in Delhi creating a flurry of activity even before the onset of this week’s Indo-US strategic dialogue. Kerry’s agenda is wide and includes bilateral trade, security and defence, science and technology and climate change.

But despite Kerry’s statement that the US regards India not as a “pivot” but “key partner” to re-balance in Asia, the US Chamber of Commerce, National Association of Manufacturers and other angry US business groups allege that the government of India is discriminating against US exports. Trade discussions with India were a point of concern, during the nomination of the new US Trade Representative. Michael Froman, who was appointed to the position last week, was chosen to press the US point of view. Forty US senators also signed a letter to Kerry, in which they urged him “to press for swift action make clear to your Indian counterparts that the United States will consider all trade tools at its disposal”.

US Secretary of State John Kerry in India on Monday. AFP

Earlier the business groups had sent a petition saying the Indian government’s attempt to create domestic jobs was “unacceptable for a responsible middle-income country and rising global power”. They claim the import barriers established by India’s policy threaten the $60 billion bilateral trade relationship. They view it as an attempt to flout the economic system, as trying to strengthen their economy at the cost of hurting that of the US.

It’s a shame that they can’t recall such hypocrisy in the history of their own nation, though. It’s sad that they remain ignorant of their own distant past.

Yes, India’s decision to embrace the free market has justified the abandoning of its import-substitution policy. Capitalisation of its non-discriminatory trade has allowed it to experience decades of robust growth. But let’s say theoretically, India reforms its current trade practices. It could certainly maintain an open flow of trade. It could, without question, pursue a more innovative policy that would appease US businesses. And albeit this is all true, so is the insincerity of the United States.

It seems as if the US has forgotten its similar plight as a developing country. The precursor to the American Civil War, the Tariff of 1789 was a heavy tax on imports meant to encourage domestic manufacturing. As the first significant piece of legislation passed by the US Congress to create jobs, it effectively established precedent and basic principles for US trade policy.

A consequence of the onset of the Great Depression, The Smoot Hawley Tariff raised tariffs within the US to a historic high. Instated by then US president Herbert Hoover in desperation, the act elicited a storm of foreign retaliatory measures. US trade policy came to symbolize beggar-thy-neighbor policy — the very grievance of which the US now accuses India. The US department of State reported that US protectionism caused imports to decline from $1,334 million in 1929 to just $390 million in 1932, and exports from $2,341 million to $784 million – a decline in world trade by about 66 percent.

It is only after the realisation of this misfortune that the US assumed its position as a champion of free trade. A champion whose current president vows to create “jobs that pay well and can’t be outsourced”. An advocate that refuses to cut domestic farm subsidies, and places tariffs on technological and solar competitors in China. A paradigm that sanctions regimes, distorting the equilibrium of trade.

India was obliged to reduce its oil dependence on Iran for six months before being exempt, just the other day, from harsh US sanctions.

The United States would also be wise to realise that India holds the key to leveling the playing field with China. At the lower end of the greatest economic war to date, the US has failed to grasp that job creation is essential to maintaining the economic gap with China. Approaching a 1 percent growth of GDP per generation, the US will be surpassed by the Asian superpower within the next two years.

At the current rate, the year 2040 will witness China’ contribution of 40 percent of the world GDP, dwarfing the mere 14 percent produced by the US.

Perhaps the very frustration preoccupying US business groups intimates the inception of a new era, of an epoch no longer dominated by the presence of the United States.